A Theoretical Analysis for Sustainability Function of SRI. Fund Organizations : A Sustainable Framework of

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1 A Theoretcal Aalyss for Sustaablty Fucto of SRI Fud Orgazatos : A Sustaable Framework of Lodo Mechasm Hroshge TANAKA Professor of Faculty of Ecoomcs, Chou Uversty, Hgashakao 74-,Hachoj-cty, Tokyo , JAPAN. Abstract Sustaable evrometal maagemet requres well codtoed cooperato ad partcpato of mult stakeholders. We must develop ad mprove some mechasms to promote cooperato ad partcpato of mult stakeholders. I vestgate here some devses to facltate the cooperato. I partcular, usg the theoretcal model of Taaka004) I demostrate that a facal fucto of SRI ca prompt sustaable evrometal maagemet effectvely.. Itroducto Globalzg ecoomc actvtes ad decetralzato of govermet mght appear commoly may advaced coutres. May evrometal ad socal problems requre bettermet wth volutary cotrbutos of may agets of govermet, frms, resdets ad NPO. Sustaable developmet of commutes could be acheved by a cooperato or volutary partcpato of mult stakeholders. By effectve cooperato of stakeholders corporatos or o-proft orgazatos could acheve sustaable maagemet ad cotrbute to mprove socal welfare. Sce may stakeholders seek self terests, probably cotrbutos of may stakeholders are defcet ad out of balaced to promote sustaablty. Nysses 006) dcates problems o mult-goal ad mult-stakeholder orgazatos.

2 We must vestgate cetves of volutary cotrbutos ad devse a sustaable scheme to foster ad to facltate them. I ths essay, we cosder the mechasm whch SRI orgazato mproves sustaablty by stmulatg actvtes of CSR. The author has publshed may theoretcal ad emprcal papers wrtte Japaese regardg to sustaable corporate local goverace. I ths essay, t s demostrated that a theoretcal model of Taaka 004) regardg to CSR could expla some fuctos of SRI fud orgazatos.. A theoretcal model of CSR ad SRI For sustaable maagemet frms should perform socal resposblty ecoomc, evrometal ad socal aspects. CSR Cooperate Socal Resposblty) s a key cocept to perform sustaable maagemet. We must vestgate theoretcal frame work of CSR ad make clear polces or methods to cotrol sustaable maagemets 3. I 00 the Cty of Lodo proposed the Lodo Prcples 4 for the sustaable developmet. I ths vew, facal fucto market has bee suggested to cotrbute sustaable developmet guded by the Lodo Prcples. I ths essay, usg the theoretcal model developed by Taaka 004) we demostrate that a SRI scheme could mprove actvtes of CSR. The model of CSR s explaed the frst. We vestgate CSR actvtes of a partcular frm 5. The frm decdes the goals at the frst. It produces goods ad servces to pursue them. x deotes the total value of outputs. Net beeft such as proft s evaluated by the frm ad represeted by Πx). The frm pays t such as evrometal costs ad cotrbuto to the local commutes for stakeholder to survve well maaged relatoshp betwee stakeholders. Total paymet for stakeholders t s defed by t = t =. Stakeholder observes the fluece of the frm ad evaluates V x, t ) for Trole00) develops theoretcal vestgato of corporate goverace. 3 Barrow006) explas total framework of evrometal maagemet for sustaablty. 4 Corporato of Lodo 006),Facg the Future reports the Lodo Prcples some detal. 5 Ths part summarzes theoretcal vestgato developed 007).

3 the producto actvty x ad paymet could ot obta the accurate formato of evaluato for stakeholder. The frm by. We refer V x, t ) for a par x t ) to exteral evaluato by stakeholder. The total value of exteral evaluato s expressed by = V x, ). t, t V x, t ) It s assumed that the paymet t mproves exteral evaluato V x, t ). The equalty V t > 0 s satsfed. It s supposed that the stakeholder sets deal evaluato value assumpto s expressed by V > V x, t ). V but the target could ot be acheved. Ths As the value of V V x, t ) crease, stakeholder wll requre the frm to mprove V x, t ) more postvely. If the frm does ot make better s evaluato, t mght suffer socal sactos such as sut by resdets, boycott of cosumers ad eforcemet of a tghteed regulato. V V x, t ) dcates socal cost evaluated by. The frm s oblged to pay a part of socal cost as c V V x, t )) wth a postve coeffcet c. c meas rsk dcator of sustaablty for. As c creases, the frm becomes to suffer greater rsk for sustaable maagemet regardg to. We cofrm straghtforwardly that c { V V x, t )} c V < 0 t = t s satsfed. The frm decreases the rsk wth by paymet coclude that orgazg scheme or stadard to duce frms to crease s a approprate method to promote CSR. Matag makes effort o sustaable maagemet for may frms. t t. We t approprately Stakeholders have complcated terests wth the frms. Stakeholders are classfed to two types. The stakeholders whose evaluato s creasg fucto of x are amed as postve stakeholder. O the cotrary, the 3

4 egatve stakeholders are defed to have decreasg fuctos of x. The frm could cooperate postve stakeholder relatvely easy. It s cooperato wth egatve stakeholders seems uavodable but ot to proceed smply. The frm seeks to obta accurate formato of the total value of exteral evaluato for sustaable maagemet. It must pay large amout of costs ad efforts. As may parts of the exteral evaluato are obtaed by stakeholders, we costruct commucato mechasm, for example motor, audt, betwee the frms ad stakeholders. Well mataed commucatos prompt sustaable maagemet. The frm could estmate δ percet of = V x, t ). Although δ does ot mprove t s proft drectly, δ mples the fucto of commucato betwee the frm ad stakeholders. So, δ s referred to altrustc coeffcet ths essay. δ s a effcet dcator for sustaable maagemet. I the etwork commuty, each stakeholder cotrbutes y to mprove altrustc the coeffcet δ 6. The total cotrbuto s represeted by y = y + L + y ). δ s creasg fucto of y, dδ y) > 0. ) We assume that a fud of SRI k s represeted by y 7 k. The fud makes effort to duce other stakeholders to eforce the frm movg to sustaable maagemet. It s assumed that for the stakeholder j agrees wth the SRI the equalty j k > 0. ) s obtaed. For stakeholder j who s dfferet to the SRI fud the equalty j = 0 3) s satsfed. Whe we cosder the role of SRI, we should make clear how y flueces other y j j ). The object fucto of et socal beeft for 6 Taaka998) cosders operatoal aspect of altrustc cocept. 7 Taaka005) attempts to apply the CSR model of Taaka to facal projects. 4

5 sustaablty s wrtte by { δ y) V x, t ) y }. 4) = The formulato defed by Taaka004) s applcable to vestgato o SRI fud. The object fucto for sustaable maagemet s expressed by NB = Π x) + δ y) { V x, t ) y} t c V V x, t )), δ 0. 5) = = The frm seekg sustaable maagemet determes x, t, L, t to maxmze the Net Beeft NB). The frst order codtos of maxmzato are wrtte by Π V x, t ) = δ + c ), x = x =, L, 6) V = δ + c ), =, L,. t 7) Equatos of 6) show that the share of postve ad egatve stakeholders could fluece the actvty of the frm. Notce that 7) s trasformed to V =, =, L, δ + c t 8) V ad t s suppose to decreasg wth t. It s coclude that a cremet of rsk dcator c or altrustc coeffcet δ lowers value of 8) ad creases paymet t for stakeholder. 3.A ler approach ad postve actvty of SRI fud Emprcal approach of ths model aalyss s stated as follows 8. Smplfy the explaato, we cosder the case that two stakeholders exst. It s assumed that stakeholder fuds ad maages a orgazato of SRI ad that agrees wth to cooperate the orgazato. To develop emprcal approach, let us employ ler approxmatos. a, b, e, f, g, e, g, e, f, g, e, g are assumed to be costats. The values could be estmated by postve vestgatos. 8 Followg explaato corrects approprately some msprts of the orgal expresso of Taaka007)pp.0-3. The cocluso of Taaka007) s verfed to hold ths Eglsh verso. 5

6 dπ = ax + b dx V x = ex + f g t + The margal effect of altrustc effect of SRI expedture s approxmated by d δ = h. The effect of SRI fud scheme s vestgated as follows. Dfferetatg 6) ad 7) wth regard to, 9), 0), ) are derved. a 9) y + δ + c ) e + δ + c ) f + δ + c ) f = h e + f) x + f + e ) t + g + g ) = dx dt dt + dx dt δ + g 0) + c ) f + δ + c ) e = h f x + e t + ) dx dt δ + c ) f + δ + c) e = h + fx + et + g ) ) The determat s trasformed smply to as follows. a + δ + c ) e + c ) f = = δ + c ) f + c ) e f δ δ + c ) f δ 0 ) δ + c ) 0 δ + c ) e = + c ) δ + ) c = δ + c ) f + c ) e a + δ f f e δ + c ) 0 e δ 0 3) f = δ + c ) δ c ) D. 4) + D s defed by = = + c ) e a + δ D ) f f δ + c f 0 ) e δ + c f 0. e The determat s trasformed as follows. a + δ + c ) e h + ) A + B) = δ + c ) f 6

7 δ h + ) A 0 = + c ) f δ + c ) f B h + ) δ + c ) e = h ) + c) = + c ) e + δ ) h ) + c) D a + δ A + B) δ + c f A 0 5) δ + c f B ) + δ 6) D s defed by = + c ) e a + δ A + B) D = δ + c ) f A 0 δ + c f B e. ) f f e Employg Cramer s rule, 7) s derved. h + ) dt D =. 7) δ + c ) D Smlarly, we could vestgate the teractos betwee the frm ad stakeholder. a + δ + c ) e δ + c ) f ) ) h + A + B = = δ + c ) f δ + c ) e A h + ) 8) δ + c ) f 0 B h + ) = h ) + c ) = + δ ) Usg the otato + c ) e a + δ δ + c ) f A + B) δ + c f δ +c ) e A 9) ) δ + c f 0 B 7

8 ) a + δ + c e f A + B) = D = + c ) f + c ) f δ e A δ 0 B ad Cramer s rule, 0) s derved. h + ) dt D = 0) δ + c ) D Notcg 7) ad 0), we argue the two coclusos. Frst, as the margal value of altrustc coeffcet h ad the fluece of SRI orgazato crease, the actvty of SRI orgazato stmulates the frm to tackle CSR programs more serously. Secod, as y δ, c c are cotaed, D, D D D D the effect o, s ot aalyzed completely. The followg cocluso s D D effectve partally. Cosderg the frst term of 0), we cojecture that to lower the rsk coeffcet of socety mproves the effect of actvty of SRI orgazato., 4. SRI ad exteral evaluato Actvtes of CSR are classfed to egatve actvtes of sustaablty ad postve actvtes to lower the rsk mprove sustaablty of the socety. Stakeholder s supposed to maxmze exteral evaluato { δ y) V x y), t y)) y }. ) = Usg the otato W = V x, t ) y, the optmal soluto y s obtaed by dfferetato ) wth ad satsfes y { } = y t y dδ V + ) W + δ y) = y = x V + t δ y) = 0 y δ The elastcty of paymet of stakeholder s sated by ε =. The frst order δ y codto of depedet varable y s expressed by 8

9 y V V ε = + ). ) W = x t Whe stakeholders cotrbute sustaablty of commuty postvely, the optmal cotrbuto s determed by W ad ε. The rate of postve socal cotrbuto to total exteral evaluato depeds o drect effect of x ad, t = V x V + t. 3) Cosderg 3), to elarge postve cotrbuto we should reform exteral evaluato scheme to fucto effectvely. 5.Cocludg remarks Sustaable evrometal maagemet s a target for frms ad commutes. Although ths target s commoly shared by mult stakeholders, the stakeholders seek mult goals. I order to costruct sustaable commuty we must vestgate the totally costtuted cetve mechasm to atta the target. I ths essay, we cosder a scheme whch prompts frms to the stakeholder more serous ad effcet. It s demostrated that SRI fuds could serve the fucto. Sce ths s oly oe part of the total sustaablty mechasm, we must vestgate remag problems such as evaluato dcators, stadards, partcpato schemes. Refereces Barrow,C.J. 006) Evrometal Maagemet for Sustaable Developmet ed., Routledge. Corporato of Lodo 006) Facg the Future : The Lodo Prcples, the Role of UK Facal Servces Sustaable Developmet, 6A5F75E/0/SUS_facgfuture.pdf 9

10 Nysses,N.ed),006),Socal Eterprse: At the Crossroads Market, Publc Polces ad Cvl Socety, Routledge. Taaka,H.998), Redstrbuto Tax uder No-Beevolet Govermets, Publc Choce 96, pp Taaka,H.004), Theoretcal Aalyss for Corporate Socal Resposblty, Global Evrometal Polcy Japa No 9, pp.-9 wrtte Japaese). Taaka,H. ed.)007), Evrometal Goverace ad commucato fucto, Chuo Uversty Geda GP. Taaka,H.005), How Bak Motorg Ca Work the Developmet Project, Joural of JBIC Isttute No, pp wrtte Japaese). Trole,j.00), Corporate Goverace, Ecoometrca,68),pp.-35. Ackowledgmets I ote that ths essay s a result of research program of Evrometal Goverace Stakeholders Socety, ad supported by Grats--Ad for Scetfc Research 007. I ackowledge Mr. Smo Mlls, Sustaable Developmet Coordator the Cty of Lodo, for offerg curret materals of sustaablty program developed by the cty of Lodo. 0